JAMES CONEY: Bank of England has a staggering lack of understanding of the crisis threatening pensioners

Once again, the genuine woes of pensioners and savers suffering because of plunging retirement payouts have been dismissed by the Bank of England.

The Bank, which seems to be rewriting history, is trying to justify its policy of pumping more money into the economy.

In doing so, it has provided us with a convenient set of facts — but also demonstrated a staggering lack of understanding of the real crisis threatening pensioners’ retirements.

Lack of understanding: The Bank of England on Threadneedle Street, London

The Bank’s policy of quantitative easing (QE) is to buy gilts (bundles of debt). By doing this it makes gilts more expensive, but also causes the annual payout they give to tumble. This is problematic because the way pension funds turn retirement savings into an income for life is by using the annual payout from gilts. So when this rate falls, so do annual retirement incomes.

The Bank started QE in 2008, and since then has pumped £375 billion into the economy.

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Using the Bank’s own figures, a pension valued at £100,000 in 2007 would have bought you an annual income of £7,140. By the end of 2009, the same pension fund would get an income of £5,630, and by May 2012 £6,560.

The Bank has freely admitted that QE had caused the gilt rate to plunge. But, it says, only some of the falls were its fault.

For example, the fall in the annuity rate would have wiped £1,630 a year off a pension between 2007 and 2012. Of this, the Bank says it was only to blame for £710 worth.

What offset this plunge was a rise in bond prices, which many pension funds invest in, caused by the Bank buying gilts. This added £1,760 a year to a pension.

It’s true that annuity rates have been falling for years, and that factors such as increased red tape and our increased longevity are to blame.

Hard times: Many have seen the value of their pension plunge

And it’s also right that the price of these bond funds has soared in the past 18 months.

Since March 2009, the average lifestyled pension fund has risen 51 per cent — but the Bank can’t take all the credit for this. And the Bank can quote as many examples as it wants, because — as our report shows — the theory does not echo what is happening in practice.

Many savers are not in lifestyled pension funds: their savings are in cash or shares, which have fared far worse. As inflation soars, and annuity rates plunge, hundreds of thousands of pensioners a year are suffering.

Of course, there has been one big winner from the rises in these asset prices: the Bank of England’s pension fund, which has been buying gilts steadily since 2007.

Its fund assets have grown from £2.5 billion to £3 billion in a year. All but 14 per cent of the fund is invested in index-linked gilts.

The Bank of England lives in a world where it can do no wrong. It has sought to dismiss the genuine problems of pensioners by baffling them with facts and figures.

Even its assessment of pension payouts is problematic as it assumes what would happen if someone with a £100,000 pension took their pension in 2007, compared with what would have happened if they stayed invested for five more years. That’s fine as a theoretical example to show the effects of QE. But in the real world, this does not stand up as it would apply only to the handful of wealthy savers who could delay taking their retirement income.

By presenting a set of figures to support its own policy, the Bank has delivered another insult to the millions of pensioners whose retirements have suffered because of QE.

But that’s a fact it conveniently seems to have ignored.

Tough travels

Money Mail has long believed there should be an Ombudsman for travel complaints. There is far too much unfairness in the way this industry deals with complaints.

For example, why are airlines allowed to charge eye-watering administration fees for reclaiming air passenger duty on flights you have cancelled? These admin fees can often outweigh the cost of the tax.

Once you cancel, the airline will simply rebook this seat and take the tax again from another passenger. That’s a nice little earner indeed.

And why, when a holiday goes wrong, can travel firms get away with offering you vouchers and discounts for future trips by way of compensation?

This is particularly upsetting when the reason you have cancelled — as in the case of Sandra Knight is because the loved one you had planned to travel with has died.

Travel companies are unaccountable for this rotten treatment.

It’s time that an independent ombudsman was appointed to ensure consumers are not being left out of pocket due to the incompetence of these firms.